US sues to block American Airlines-US Airways merger that could reduce service at Bangor International Airport

An American Airlines jet takes off while U.S. Airways jets are lined up at Reagan National Airport in Washington in this July 12, 2013 file photo. AMR Corp's American Airlines and US Airways will win EU approval for a $11 billion merger to become the world's largest carrier after agreeing to surrender slots on one route, according to July 29, 2013 reports.

By David Ingram and Karen Jacobs, Reuters

Posted Aug. 14, 2013, at 5:54 a.m.

WASHINGTON — The U.S. government on Tuesday sued to block American Airlines and US Airways’ proposed merger to create the world’s biggest airline, saying consumers would end up paying higher fares and fees.

The surprising move could also hinder American parent AMR Corp.’s efforts to emerge from bankruptcy.

The Department of Justice, which in recent years has allowed two major airline mergers — United-Continental and Delta-Northwest — to go ahead, made it clear that it is out to block the $11 billion deal entirely rather than seeking concessions from AMR and US Airways.

“We think the right solution here is a full-stop injunction,” Bill Baer, head of the Justice Department Antitrust Division, told reporters on a conference call.

The lawsuit, filed in U.S. District Court for the District of Columbia and joined by several states including Arizona and Texas, drew support from consumer advocates, but surprised the industry.

AMR and US Airways said they would launch a “vigorous and strong defense” against the effort to block their merger, which they said would enhance competition.

The two airlines had been widely expected to win approval for the deal, which was announced in February. They secured European Union approval on Aug. 5 after promising to surrender some slots at London’s Heathrow and Philadelphia.

But some experts said the airlines face a tough task convincing regulators that the creation of a new dominant airline would not harm consumers.

“US Airways and AMR have an extreme uphill battle to save the merger,” said David Balto, a former trial lawyer in the Department of Justice’s antitrust division who is now in private practice in Washington, D.C.

“The [Department of Justice] complaint tells a compelling story of how the airlines acted together to increase fees and reduce service, and how US Airways and American had a blueprint to increase prices through the merger,” he said.

The Justice Department said it was concerned that if the merger went through, four airlines would control more than 80 percent of the U.S. commercial air travel market.

At Reagan National Airport in Arlington, Va., the one closest to Washington, D.C., the combined US Airways-American would control 69 percent of takeoff and landing slots, the department said.

If the merged airline were forced to give up slots at Reagan National, this would put flights to smaller and medium-sized markets, such as Bangor, at risk because other airlines would use them to reach larger markets, Anthony Caruso, director of the Bangor International Airport, said earlier this year.

“Originally when the merger was discussed we didn’t have any concerns, but as talk of slot divestiture started to happen it certainly increased the risk of the small and medium size cities losing or reducing service,” Caruso said in May. “It does remain a risk to us.”

U.S. Airways provides three round-trip flights between Bangor International Airport and Reagan National. The route, which began in March 2012, has “performed very well,” Caruso said. “It certainly worked out to be a very good, strong performing route for U.S. Airways and certainly for the Bangor market.”

“The impact of the proposed merger of US Airways and American Airlines on smaller airports in states like Maine must be carefully reviewed,” Collins said in a statement. “Commercial air travel in smaller markets could be reduced, resulting in passengers paying higher airfares and having fewer flight choices. This proposed merger, therefore, needs further analysis to determine whether or not it is in the best interests of consumers as well as the airlines.”

Other industry experts said the lawsuit’s aggressive demands were out of step with past cases and would potentially leave US Air and American, which is emerging from bankruptcy, at a competitive disadvantage.

Baer, the former Justice Department lawyer, said that while he wouldn’t rule out a proposed settlement, he thought the evidence pointed to the department blocking the deal. But several experts said the deal could ultimately go through, with concessions from the airlines.

“I think this is another governmental mistake,” former American Airlines Chief Executive Robert Crandall told Reuters in an email.

By allowing mergers between United Airlines and Continental, and Delta Air Lines and Northwest, the government “made a third large merger inevitable,” he said.

In the long run, he added, blocking the merger will “reduce effective competition in the airline industry, as neither US Air nor American Airlines is large enough to compete effectively in their present form.”

A hearing on Thursday to confirm AMR’s bankruptcy exit plan, which is based on the proposed merger, was still slated to go forward as of early Tuesday afternoon, according to a clerk in Judge Sean Lane’s chambers.